Epiroc AB (publ)

Welcome to the Epiroc Q4 results presentation. My name is Karin Larsson and I'm head of IR here at Epiroc and with me today in Stockholm to present the results I have our CEO Helena Hedblom and our CFO Anders Lindén. We will follow the same procedure as we always do with these presentations. We will start with a brief presentation of the results and then we do a Q&A session. And in the Q&A session, please keep it short. One question, at most two, to make sure that as many of you as possible can ask questions. But without further ado, Helena, please, the stage is yours.

Thank you, Karin. And welcome to EPROC's Q4 and full year presentation. I hope that you have had a good start in 2021. Before Anders and I go into the results and the development of our prioritized areas, I would like to say that I'm proud representing EPROC today and all our employees. Our employees really walked that extra mile during 2020. They have managed to cope with the short-term challenges related to the pandemic and made extraordinary efforts to support our customers. Also, they have continued to successfully deploy our technology solutions across the globe. As an organization, we have balanced the short-term and the long-term actions. We have adapted to the current situation and at the same time built an even stronger EPPROC for the future. So then we will try to summarize the full year. So EPROC showed agility in a challenging 2020. The COVID-19 pandemic affected us significantly in the year, but yet we managed to quickly adapt our way of working to lower our cost, prioritize innovation, show resilience in our profitability and deliver a solid result. And we managed to do this while prioritizing health and safety and supporting our customers in this very challenging situation. There was a significant impact on our business, particularly in the second quarter. But demand recovered in the second half of the year and orders were all in all flat organically versus 2019. Revenues decreased 5% organically to 36.1 billion SEK. Operating profit was impacted by the lower volumes and by currency. But still, with support from our efficiency actions and the growth in service, we're up 5% organically in service, our operating margin improved, both reported and adjusted. And we delivered a solid cash flow, operating cash flow over 7 billion SEC, which is even better than 2019. And we have a strong financial position. So the board has proposed a distribution to shareholders of 5.50 SEK per share through a dividend of 2.50 and in addition 3 SEK through mandatory redemption. We have also set sustainability goals for 2030 in line with the Paris Agreement. And we also improved our performance on most of our sustainability areas throughout the year. So all in all, I am pleased with the results in 2020, given the situation. If we then move over to the fourth quarter, Customer demand remained largely at the same level in Q4 as we saw in Q3, but it was stronger than Q4 2019. The activity supported our aftermarket business and we continue to see that our customers took decision to invest in equipment. As in Q3, majority of the orders were small and medium sized orders. So this means that all in all we achieved organic order growth in all our businesses, which is really good to see. We saw the highest growth in equipment and service. Sequentially, organic order growth was 2%. The revenue increased by 6% organically, with a solid growth for our aftermarket businesses. A strong aftermarket in combination with a successful cost savings contributed to an improved operating margin. a record high adjusted margin of 23.2%. And I am particularly pleased with a strong improvement in margin for tools and attachments. Our technology solutions continue to be in high demand. And in the quarter, we announced the agreement to acquire MineRP, which is a high quality mining software provider with significant experience of connecting mines from pit to port. We'll come back to that later on. So some comments on the financials. Anders will dive deeper into this later on, so I will be brief. Orders received increased 13% organically to 9.3 billion, as I mentioned. Equipment up 26% organic, service 9% organic and tools and attachments 5% organic. We also had a large negative currency effect of minus 12%. Revenues were 9.8 billion SEK, which is up 6% organically with strong growth in service. And operating profit increased 10%, despite the negative impact from currency. Adjusted margin improved more than 2 percentage points. And cash flow was solid and came in at 2.2 billion SEK. So despite the deteriorating situation with the pandemic, with increasing number of cases, the overall number of customers that were closed has been gradually trending down in the fourth quarter. But I would say that we still had an impact in some markets, for example, in the United States, as well as in Peru. From an operations standpoint, all our distribution centers and manufacturing facilities are operational, which is good. But there are still uncertainties regarding the pandemic development. And we still argue that the situation is stable, but fragile. And we are monitoring the situation very carefully. And we see some challenges in transports and in supply chain. But for the time being, we are managing. And we continue to work hard on prioritizing health and supporting our customers operations. So moving over then to an update on our priorities, if we start with innovation. So we are proud of our market leading solutions that are deployed and proven globally. And in Q4, automation, digitalization and electrification solutions continue to be in high demand. And we believe the trend is here to stay. As our solutions enable increased productivity, safety and sustainability for our customers. We have announced a game changer for explosive charging. Together with Orica, we have developed Avatel, a rig for semi-automating charging. But innovation is not only about creating new things. It's also about strengthening what is already good. So for example, we have expanded our range of SB breakers in the quarter. We have launched a new drill string for production drilling, which is perfect for autonomous machines. and we have upgraded our rig control system. But to strengthen our position as a technology leader and productivity partner, we also look for inorganic opportunities. And in Q4, we agreed to acquire MineRP, which is a software company specialized in increasing productivity for mines through integrated planning, execution and analytics. And this will give us a data integration platform with several expert systems specialized for the mining industry. And the combination of our expertise and MineRP's platform will support our customers on their digitalization journey. MinRP has about 200 employees and about 135 million SEK in annual revenues. And the acquisition is expected to be completed here in the first half of 2021. So a warm welcome to MinRP to the EPPROC group. Then over to our aftermarket, which represents roughly two-thirds of our revenue. So in these challenging times, we continue to support our customers to the best of our ability and to safeguard that they can run their operations. We also continue to strengthen our offering and our presence, for example, with focused service products and with investments in service facilities and in technicians close to our customers. And again, we see good results of our work with strong demand for our service products, And we have successfully increased our customer share. And we continue the work connecting the fleet because this gives us very valuable insights so that we can be more proactive in our aftermarket. As you know, at EPPROC, we continuously strive to be better, to improve and do things in a smarter way. And this is operational excellence for me. The cost saving program of more than 500 million SEK annually was implemented successfully with full impact already in Q3. And the positive trend on the functional cost was also noted in Q4. Many efficiency actions have been implemented around the world, including some in Sweden. And there are some savings from these in Q4, but some will also be realized this year. The supply chain improvement program continues according to plan and we see good results on improved availability of both parts and consumables. Other positive things are reduced environmental impact from transports and lower inventory levels. Some of the savings for examples on transports have unfortunately been offset by higher freight charges during 2020 due to the pandemic. Also we see the positive effect from our short-term actions that remains at a good level. On sustainability, I would like to start speaking about engagement. Because the year was challenging with quick changes in demand, we remained calm, we took the necessary actions, maintained our focus of being the best possible partner for our customers. And the passion and the dedication of our people made it happen. We had an employee survey at the end of the year. And it showed that Epprock is an appreciated employer. The engagement level actually increased in 2020 despite the pandemic, which is great to see. It's also good to see that our leadership index increased compared to 2019. It is in challenging times leaders are put at test. And I would say that our leadership model with clear accountability and our since long decentralized business model works well also in challenging times. I'm also pleased to see that we are improving in the area of safety. We are focusing on building a safety culture and we have a significant reduction in lost time injury frequency rate. Also good to see that our CO2 emissions continue to decrease, both from operations and from transport. So with that, I conclude this introduction and I hand over to Anders.

Thank you, Helena. From strong sustainability results to strong financial results, our reported operating profit increased 10% and reached 2 billion 212 million SEK. Despite the currency headwind, the organic growth in competition with cost savings supported the profit and the margin, of course. The operating margin was 22.6% or adjusted. 23.2%. This is the highest level achieved by Epiroc as a listed company. Quite an achievement, I would say. So, looking at the details in the bridge, compared to last year, the profit increased nearly 200 million. As you know, we have focused our actions on permanent cost savings rather than short-term actions, and these actions have come through, and we have seen good effects, which is visible in the bridge. Currency had a negative impact, as you can see, both in relative and in absolute terms. We had less impact from restructuring and other one-time items this year. This year, the LTI effect was the largest item affecting the comparability with 52 million. Excluding LTI and some relatively small restructuring costs, the margin was 23.2%. Last year, we had an adjusted margin of 20.7%. So it's 2.5 percentage points higher this year. On currency, we had a positive impact on the margin in the bridge last quarter, and this time it is negative. So coming into the segments, starting with equipment and service, which represents 75% of the revenues, we had a strong organic development on orders with 16% organic growth. Equipment was up 26% organically year on year, and service continued to grow plus 9%, almost the same level of growth as we had in Q3. Compared to the previous year, Orders received in local currency increased in all regions with the highest growth rates achieved in South America and in Asia-Australia. Orders increased for both underground and surface equipment and, as Helena already mentioned, with most of the orders being small or medium-sized. Revenue decreased 4% to 7 billion 456 million, mainly due to a large negative impact from currency minus 11%. Organically, revenues increased 7% with an organic increase of 13% in service. Profit was also contributed by the growth in service and from the cost savings, of course. This was positive for the margin, but let's discuss that more on next slide. Operating profit came in at 1,966,000,000, up 7%, despite the negative effect from currency. In total, the reported margin reached 26.4%, supported by the higher volumes, a better mix with more service and the cost savings. We had no restructuring costs in the quarter in this segment. Now, looking at tools and attachments. The orders received for tools and attachments also grew up 5% organically. Also here, a large negative effect from currency, minus 11% in the segment. The orders received increased both for hydraulic attachments and for rock drilling tools. In Europe, which is an important market, the orders grew double-digit growth in the quarter. Sequentially for this segment, we had plus 5% organic order growth. Revenues decreased 9% in SEC year on year. However, it increased 3% organically. In the reported operating profit, which increased 23% compared to previous year, and that is despite a negative currency impact. The actions that we have implemented to lower the costs, improve the efficiency and to optimize the product portfolio have given the results. The operating profit improved, as mentioned, and was 363 million SEK, including the restructuring costs of 15 million. Last year, we had restructuring costs of 17 million. We also had a one time cost last year related to an acquisition of 18. This you can see included in the structure, which is why you see a positive number in the bridge. The reported margin was 15.9% and adjusted for restructuring it was actually 16.5%. It is very good to see this development, but this hard work must continue. This graph on costs very much speaks for itself. We have successfully lowered our costs in administration and marketing year on year, also when taking currency into consideration. And to see the costs decreasing is, of course, good. This allows us to prioritize investments in innovation and in off the market. Financial net came in higher than last year with a large impact from exchange rates and the exchange rate differences. Tax expenses were 453 million and the tax rate was lower than the run rate at 21.7%. However, for quarters, tax rates can vary, but for the full year, the tax rate was 23.7%. And for the future, we keep our guidance to be below the 25%. We had a strong financial position already after the last quarter. And now, despite paying a second dividend in Q4, our position is even stronger. We ended the period with a net cash position of 4,137,000,000 SEK. So the board has proposed a dividend for the fiscal year 2020 of 250 SEK per share. and this is proposed to be paid out in two equal installments totaling 3 billion 15 million and this translates to a 56 percent payout ratio which is in line with our financial target of 50 percent over a cycle the board also proposes a distribution of three sec per share through a mandatory redemption in total this proposal adds up to 6 billion 633 million sec Networking capital compared to last year decreased by 20%, of which 13% from currency. We've made good progress compared to previous year, both in terms of receivables and inventory, and a lot of work, a lot of hard work here. As a percentage of revenues the last 12 months, this average networking capital was 33.8% compared to 34.4% last year. And the return of capital employed during the last 12 months were 21.7, affected negatively mainly by the accumulation of cash. Now, coming to the cash flow. Again, the organization has worked hard, which has led to a strong cash flow. Not as strong as last year, but still solid and at a very good level. The operating cash flow came in at 2,156,000,000 and the cash conversion rate remains at a high level above 100%. And to go into some, but not all the details compared to 2019, the profit was higher than last year. The net financial items were higher as were the taxes paid. The working capital decreased mainly due to reduced inventories. However, in 2019, we released even more cash from working capital in Q4. And even if in Q4 it was lower, for the full year, the operating cash flow was higher in 2020 than in 2019. And by that, I conclude the discussion on cash flows. Just as Helena started this presentation with some comments on the full year, I would like to end mine with a full year comment as well. Briefly on how we have fulfilled our financial goals in this extraordinary year. Starting with revenues, we have a goal of growing 8% per year. In 2020, we were organically impacted by the pandemic and revenues actually declined by 12%. Organic, it was down 5%. On margin, we improved the margin actually in 2020 compared to 2019, despite this challenging year. Capital efficiency. This year the return on capital employed is affected by the accumulation of cash, but still I believe we can do better on working capital. We have a goal of an investment grade credit rating and with a BBB plus rating we achieve this goal. And finally, on the dividend, the board has proposed a dividend of 250 SEK per share, which corresponds to a 56% payout ratio. And in addition, the board proposed a mandatory redemption of 3 SEK per share. So with that, I conclude the financial part and hand over to Helena again. Thank you.